ACCENDRA HEALTH INC/VA/ Income Taxes Disclosure

Note 12—Income Taxes

The components of (loss) income from continuing operations before income taxes consist of the following:

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The income tax provision consists of the following:

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A reconciliation of the federal statutory rate to our effective income tax rate is shown below:

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The domestic state jurisdictions that comprise the majority of the domestic state and local income taxes, net of federal benefit are California, New York, Illinois and Oregon for all years presented.

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

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The valuation allowances relate to deferred tax assets for U.S. federal and state capital loss carryforwards and net operating loss carryforwards and credit carryforwards in various state jurisdictions. The U.S. gross capital loss carryforward of $184 million has an expiration date of five years. A gross valuation allowance of $164 million has been established against the capital loss as future capital gain income of $20 million is projected before the expiration. As of December 31, 2025, gross federal net operating losses of approximately $362 million are available to offset future federal taxable income, of which $206 million represents reattributed net operating loss carryforwards resulting from negotiated terms included within the sale agreement of our P&HS business. The entire $362 million of net operating losses have an unlimited carryforward period and will not expire. In addition, as of December 31, 2025 $147 million of gross deferred interest deductions that have an unlimited carryforward period are available, of which $33 million has been reattributed resulting from the negotiated terms included within the sale agreement of our P&HS business. As of December 31, 2025, there are $13 million of state tax effected net operating losses available with various expiration dates ranging from five years to an unlimited carryforward period. As of December 31, 2025, there are $4.0 million of credit carryforwards available, with various expiration dates ranging from five to twenty years. Based on management’s judgment using available evidence about historical and expected future taxable earnings, management believes it is more likely than not that we will realize the benefit of the existing deferred tax assets, net of valuation allowances, as of December 31, 2025.

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Cash payments for income taxes (net of refunds), including interest, for 2025, 2024 and 2023 were as follows disaggregated for jurisdictions that comprise 5% or more of total taxes paid in the year presented:

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* The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.

A summary of the changes in the liability for unrecognized tax benefits from the beginning to the end of the reporting period is as follows:

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Unrecognized tax benefits of $49 million and $36 million at December 31, 2025 and 2024 would impact our effective tax rate if recognized.

We recognize accrued interest and penalties related to unrecognized tax benefits. Accrued interest at December 31, 2025 and 2024 was $12 million and $13 million. The amounts recognized in interest expense for the years ended December 31, 2025, 2024 and 2023 were ($1.0) million, $7.6 million and $1.7 million. There were no penalties accrued at December 31, 2025, 2024 and 2023 or recognized in 2025, 2024 and 2023.

On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) regarding our 2015 and 2016 consolidated income tax returns. On June 30, 2021, we received a NOPA from the IRS regarding our 2017 and 2018 consolidated income tax returns. Within the NOPAs, the IRS has asserted that our taxable income for the aforementioned years should be higher based on their assessment of the appropriate amount of taxable income that we should report in the U.S. in connection with our sourcing of products by our foreign subsidiaries for sale in the U.S. by our domestic subsidiaries. The transfer pricing methodology was consistently applied for all years subject to the NOPAs and 2019 into 2022, but is no longer employed.

In late June 2024, the IRS and the relevant foreign taxing authority mutually agreed to proposed adjustments to our 2015 through 2018 consolidated tax returns. As a result, we remeasured the uncertain tax position for the 2015 through 2018 tax years, as well as the affected 2019 through 2022 tax years, to the amount expected to be paid upon a final agreement with the IRS. In June 2025, we received the final assessment from the IRS for the 2015 through 2018 tax years including interest. The uncertain tax position for these years and related accrued interest has been remeasured to reflect the final amount to be paid. This matter does not impact our 2023, 2024 or future tax years. As of December 31, 2025, we owed $35 million associated with the NOPA matter, which includes $11 million of interest accrued on the matter through December 31, 2025. The balance sheet classification and amount owed may be subject to change depending on the timing of a final agreement with the IRS.

On July 4, 2025, the U.S. Congress enacted budget reconciliation bill H.R. 1 referred to as the One Big Beautiful Bill (OBBB). The OBBB contains several changes to corporate taxation including modification to limitations on deductions for interest expense and accelerated fixed asset depreciation. We expect the legislation to decrease future U.S. cash taxes with no material impact to the effective tax rate.

We file income tax returns in the U.S. federal and various state jurisdictions. Our U.S. federal income tax returns for the years 2019 through 2024 are subject to examination. Our income tax returns for U.S. state and local jurisdictions are generally open for the years 2019 through 2024; however, certain returns may be subject to examination for differing periods.